Is it time to take your business to the next level? Once you have a few employees and profits are picking up it may be time to evaluate how your growing business is affecting your personal assets. ?Incorporating can protect you against legal actions, business debts, and taxes that erode your income.
According to Entrepreneur Magazine, if you are a small business owner wondering how to incorporate your business? the C corporation may seem like the wallflower of American corporation options. Often thought of as the choice of big business, a C corporation offers several advantages to smaller businesses that may make it a more attractive option than a Limited Liability Corporation or S Corporation. ?The name ?C Corporation? is derived from the fact that Subchapter C of the Internal Revenue Code governs the federal taxation of basic corporations in the United States, and it is important to understand the benefits of this business structure prior to moving forward with incorporating.
- Limited personal liability from lawsuits and creditors. An important advantage of a C Corporation is that it exists as an entity separate from its director, shareholders, officers and employees.? The personal assets of individuals are protected, as legal action and judgements brought against the corporation are payable by the corporation, limiting the personal liability of the individuals involved.
- Lower taxes. ?Even though the taxes on C corporations are treated differently from other business entities in that they do not enjoy pass-through tax features, smaller businesses may benefit from income tax savings. While the first $50,000 of annual personal income is taxed at a rate of 28%, as a C Corporation the income tax rate on the same amount is only 15%. This is significantly lower than income taxed through an LLC, an S corporation or sole proprietorship. ?As salaries, rents, depreciation, donations, repairs, maintenance and benefits are tax-deductible for C corporations, it may be possible to reduce your business income to under $50,000, making this an attractive alternative to the other options.
- Tax deductions for health insurance premiums and medical reimbursement plan. Businesses set up as a C Corporation enjoy a tax deduction of 100% of health insurance premiums paid for all employees. Additionally, corporations that choose to initiate a medical reimbursement plan for medical expenses not covered by health insurance can deduct the full amount of these expenses. Great for the employees and the employer.
- Easier to get venture capital and outside investors. ?If your business is looking for $5 million or more in funding, give a C corporation another look. The flexible owner options make C Corporations attractive to venture capitalists and other outside equity funding sources. It also makes it easier to take a business public.
- Deduct fringe benefits. If your business provides education, public transportation monthly passes, vehicles for employees, and life insurance on employees (up to $50,000 each) becoming a C corporation allows you to deduct these fringe benefits.
The Business Magazine Inc. reports there are pros and cons to each of the incorporation options available to small business owners in the United States.? Research each option carefully to find the one best suited for your business goals. ?Though most entrepreneurs think of it as a choice for a business with at least 100 employees, or one that is poised to go public, a C corporation has some features that make it worth a second look for? smaller small businesses too!
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Source: https://www.businessfinancestore.com/2012/08/27/5-benefits-of-a-c-corporation/
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